Education Planning: From Birth to Graduation

We all want to give our children the best start in life. A solid foundation through education is one of the greatest gifts that you can give a child, yet funding education ranks as one of the largest expenses you will ever face; it must therefore be carefully planned for. The key to successful educational planning is to start early, contribute regularly, and invest wisely.

Here are some issues to consider:

The earlier you start the better. Time is a fundamental factor in successful investing. Paying school fees on an ad-hoc basis without advance planning will cause huge financial strain unless you have significant income and savings. How much time do you need to prepare for this expense? If you start early, you have the time to save and invest without much pressure.

Ideally one should start planning for a child’s education as soon as you plan to have a baby. Acting on such a long-term goal early, might seem absurd but with the rising costs of education, the sooner your start, the better. With a head start, even small sums set aside on a regular basis enjoy the power of compounding and can grow into a significant educational fund over time.

For many parents that haven’t planned ahead, reading this may be somewhat disheartening. Even if your children are older, the key is to be deliberate about saving aggressively to ease the burden.

How much can you afford to save? Consider the assets you hold, your debt situation and what you can realistically save given your other commitments. Look at your family's unique financial circumstances and determine what makes sense for you, what you can afford and can stay committed to over the long term. Automating your savings via a direct debit is a great to make steady, regular progress towards your goals.

What are your options? Don't feel pressured into embarking on an educational journey that you cannot afford; societal pressures can sometimes make us make absurd financial decisions. Remember that the most expensive school isn’t necessarily the best one for your child, and the best school for your child need not be that expensive. The most suitable choice largely depends on your own unique family circumstances and goals.

From your child’s earliest years, start to identify their skills and talents in a particular area; technology, music, drama, sports or they may be exceptionally gifted academically. If your child has a unique talent, it is worth selecting a school where it can be nurtured. Children thrive when they participate in activities where they have a strong natural ability.

Many leading educational institutions offer scholarships and grants for outstanding abilities. These, however, do come with some strings attached, such as maintaining a certain standard of performance or being tied to a particular field of study. Scholarships seldom cover all costs, so you must still come up with the difference.

Be mindful of not pushing too hard to extract performance levels that might just be beyond your litle genius’s ability. Such pressure can lead to high levels of stress, anxiety, and depression.

In planning for your child’s education, estimate what the total cost is likely to be. It is better to over-estimate than to risk having a shortfall that could affect your plans. Major expenses include tuition fees, accommodation, textbooks, laptop, sporting equipment, uniforms, transportation, extra-curricular activities, private tutors and personal expenses.

Annual increases in education costs range between 10% and 15% each year. Bear in mind that this could be significantly higher. In any case, this means that a child born today will face a tuition bill several times more than what the average student pays today.

On the internet, there are numerous savings calculators that can build various scenarios. Factor in historical trends and crunch the numbers; what happens when you earn a higher interest rates on your deposit, if you miss a month's payment, are able to make an extra payment. A financial calculator helps you determine how much to put into the education fund each month in order to meet a particular goal.

If it is your intention for your children to be educated abroad, the exchange rate is crucial. Massive devaluations of the naira against major currencies completely overturned many educational plans. Seek professional advice regarding offshore investment opportunities that can generate income to help offset expenses abroad.

The stock market is generally regarded as a strong option for long term investing; stocks have historically outperformed other investments over the long term; in the short term they can be volatile. If your plan is to put money away for your child for about ten years or more, then it is well worth considering investing directly in a professionally managed portfolio of blue chip stocks or an equity mutual fund which offers diversification and liquidity. Your fund choice will typically depend on factors such as child’s age, your risk tolerance, time frame, and ultimate financial goal. 

As your child approaches college age, say two to three years before, preservation of capital should take precedence over the rate of return. If you leave the money in stocks till the last minute, you may be forced to sell at a loss. Begin to shift your money into more conservative investments such as treasury bills and other money market accounts to reduce exposure to market volatility.

Real estate is an outstanding asset class that can support education funding; you can sell property, earn rental income to pay school fees, or borrow against a property.

You may be eligible to borrow a percentage of your home equity; this is the difference between the market value of your property and the outstanding mortgage loan. Be cautious about going into debt to fund your child’s education; interest expenses significantly increase the education costs, and if you default, you could lose the property.

Unsecured loans are available for relatively high-income earners but at double digit interest rates; avoid borrowing to pay school fees without the capacity to service the loan comfortably, or it can turn into an unending cycle of debt.

Have you considered an educational savings plan? Leading insurance companies in Nigeria offer Educational Savings Plans that lighten the burden considerably and help parents avoid the sudden huge expenses that come from inadequate planning. For a relatively small premium, with an Education Protection Plan, you can secure your child’s education even if the worst happens.

An Educational Trust is a trust established with the sole purpose of providing funding for education. At the appropriate time withdrawals can be made from the Trust to fund the education of beneficiaries.

Some private schools permit parents to pay school fees in advance, say annually or longer, for a discount. This can be attractive particularly in environments where inflation is very high as it helps you lock in today’s costs without having to worry about rising costs in the future. Consider this carefully however, as by tying down your funds you forfeit the opportunity to invest the funds yourself.

As you prepare financially for your children’s education, remember that while you want your child to succeed in life, you cannot afford to neglect or jeopardise your own financial security. Try to find a happy medium between selecting a school that you can afford and one that offers a sound education. Maintaining your own long-term financial security is key to your children's stability as well as yours.